Visions of New Zealand as the economic equivalent of Tigress from the Kung Fu Panda franchise have more than a leap of imagination to contend with. Image / Paramount Pictures via AP, File
Visions of New Zealand as the economic equivalent of Tigress from the Kung Fu Panda franchise have more than a leap of imagination to contend with. Image / Paramount Pictures via AP, File
Opinion by John Gascoigne
OPINION
The claim is often made that had Sir Robert Muldoon had not scuttled the Kirk Government’s compulsory or privatised New Zealand Superannuation Scheme in 1975, New Zealand would have become “The Antipodean Tiger” and the envy of the world.
The claim is absurd.
Those who make such claims simplydo not understand the connection between savings, investment, economic growth, and living standards or the dynamics of successful economic development.
However, proponents of privatised superannuation are entirely correct about our low savings rate. In fact, a perennial shortage of investment capital forms the central strand of our economic history. This deficiency is the direct result of the failure of successive governments to mobilise domestic savings for capital formation and productive enterprise.
New Zealand’s transformation from a low-wage, capital-constrained, middle-income agricultural export nation to a rich-nation status would require vast amounts of investment capital.
The staple argument for privatised superannuation is that increased savings lead to greater productive investment, faster economic growth, rising living standards, and the means to provide everyone with a comfortable retirement. But that upward, virtuous-circle argument is seriously flawed; increased savings do not automatically flow into productive investment.
Privatised superannuation works by taking a percentage of personal income that is invested by private sector fund managers. At retirement, accumulated savings are withdrawn by retirees from their individual retirement accounts. Fund managers are largely unconstrained by state directives.
One commentator concluded that, if left intact, the Kirk government’s privatised superannuation scheme would have accumulated around $100 billion by 1984. More recently, another commentator suggested our accrued savings might well have exceeded $1 trillion by now.
But would New Zealand have become an “Antipodean tiger”? Short of becoming an export powerhouse, absolutely not.
When the Fourth Labour Government neoliberalised (or reformed) the New Zealand economy in 1984, all normal business and banking caution was simply thrown to the wind. Accordingly, to suggest the $100 billion fund would have emerged intact from that episode is utterly implausible. Most, if not all, would have been squandered on property and stock market speculation.
Economic growth is a function of national savings productively invested, chiefly in high-return export industries, research and development, and infrastructure.
Economic development calls for extensive direction and oversight both to initiate the process of savings mobilisation and to ensure newly mobilised savings are directly channeled into productive investment to grow national wealth.
Yet, even if New Zealand were to achieve high economic growth, it would be offset by strong population growth cancelling out any gains otherwise resulting from that higher economic growth.
John Gascoigne. Photo / Supplied
The term “tiger economy” generally refers to the tiny, rapidly developing nations of East Asia. They are all export powerhouses. Through exporting, they have tapped into the wealth of much larger nations abroad. Hence their prosperity. And that observation goes for all the other tiny, high-income nations that have leapfrogged past New Zealand over recent decades.
Fortunately, Sir Robert Muldoon stopped privatised superannuation dead in its tracks with his world-leading National Superannuation Scheme which provides all New Zealanders with lifetime retirement income security, something no privatised superannuation scheme could ever achieve.
Significantly, various countries which have privatised their superannuation systems have since re-nationalised them.
Governments, after all, generally run superannuation schemes far more effectively and efficiently than the private sector.
Proponents of privatised superannuation have never explained how retirees who outlive their savings are to support themselves. They forget that social security is exactly that, a security. Privatised superannuation is just a gamble.
- • John Gascoigne is a Cambridge-based economic commentator.
